The measure has been put forward as a way of preventing the spread of HIV in the Indonesian province. But the move is facing stiff opposition from health workers.
About 2.4% of Papuans are known to be carrying the virus, and infection rates in the province are estimated to be 15 times the national average.
The proposals were put forward by a member of the parliament's health committee.
He told the BBC that Papua's government could no longer rely on traditional means of stopping the spread of the disease, and microchips could provide a means of tracking people who continued to infect others.
As well as calling for the introduction of microchips, the bill also suggests mandatory testing of every resident in Papua.
Parliamentarians are reported to have discussed tattooing those found to be carrying the virus.
Papua's AIDS commission has rejected the bill. It said it was not involved in the drafting process and that the proposals were illogical and inhuman.
Marking out anyone carrying the virus, it said, would contravene their human rights.
To become law the bill would need to be approved by government, health and legal experts and pass a public consultation.